Letter of Intent

A letter of intent (LOI) is a written document issued by a client or employer to a contractor, confirming the intention to enter a formal contract and authorizing a defined scope of work to begin while that contract is still being finalized. Letters of intent are widely used in construction, office fit-out, AV systems integration, and large-scale procurement where mobilization genuinely cannot wait for the full contract to be executed. A properly drafted LOI sets a financial cap and defines the authorized scope, protecting both parties until the main contract is signed.

How a Letter of Intent Works in Practice

An LOI typically sits between a successful tender or quotation and the execution of the formal building contract. The client needs the contractor to mobilize - ordering long-lead materials, booking specialist trades, or beginning site preparations - while contract negotiations are still being concluded. The letter authorizes that mobilization for a defined scope and up to a specified financial limit.

The legal status of a letter of intent is not fixed. It can range from a non-binding statement of intent to a legally binding interim contract, depending on how it is drafted. UK courts look at the specific wording and circumstances rather than the label. Courts have repeatedly confirmed that a letter authorizing specific work and promising payment creates real legal obligations, even when the parties did not intend to create a binding contract. An LOI that is poorly drafted or allowed to run beyond its authorized scope can expose a client to claims that would otherwise be covered under a full contract.

What a Letter of Intent Should Include

A well-drafted letter of intent covers the following: the identity of the project and all parties involved; the agreed contract sum or pricing basis; a reference to the tender documents and any post-tender amendments; a clear instruction to proceed with a confirmed start date; the proposed form of contract to be used; a fall-back date by which the formal contract must be executed; the limited scope of work authorized under the LOI; the financial cap on authorized expenditure; and the terms for canceling the authorization and settling costs if the formal contract is never agreed.

Clients should treat a letter of intent as a temporary measure and move quickly to finalize the full contract. The longer work continues under an LOI, the harder it becomes to hold the contractor to the full contract terms, and the stronger the contractor's position in any renegotiation once the project is underway.